News

Bulls Must Beat Key Resistance Level

Chilly waters have the bulls with one toe in but not yet willing to make the plunge. A catalyst is needed to spike the market here.

I’m beginning to feel the market will get that, a brief surge into late April/early May, then a 6% to 8% correction.

If the BIG money sees it that way they will exit sooner.

The April surge would be triggered by spring and evidence that a decent part of the economy’s sluggishness has indeed been severe weather, causing a deferment in spending by consumers and corporations.

The DJIA must top two hurdles this week. The first is DJIA 16,412, the second 16,450. The S&P needs to beat 1,872 then 1,879.

The problem here is three rally failures March 11, 13, and 21. Obviously, selling is programmed to come in the 16,450 area for the DJIA and 1,878 for the S&P 500.

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ANOTHER 6% + CORRECTION BEFORE MAY - UNLIKELY

One of the Stock Trader’s Almanac’s great discoveries is the fact the stock market’s performance during thesix months between November 1 and May1 is far superior to the six months between May 1 and November 1.* The Almanac refers to it as the “Best Six Months.”

Over of the last 25 years, the “Best Six Months” has produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).

Over the last 25 years, there have been14 corrections ranging between 6% and 16%, but more than one correction of this size during the Best Six Months was rare.

In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April. In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and a 12.9% correction in January/March of 2003.

So far, the DJIA is ahead 6.0% since October 31, 2013 even with a 7% correction in the interim. Another correction exceeding 6% is of course possible, but unlikely.

Investor’s first read– a daily edge before the open

DJIA: 16,367

S&P 500: 1,865

Nasdaq Comp.: 4,234

Russell 2000: 1,178

Wednesday, March 26, 2014, 9:16 a.m.

.THE FED:

Fed chief JanetYellen said in her press conference last week that the Fed’s stimulus program could end this fall and benchmark interest rates could rise six months later, which places a rise in rates in the spring of 2015 rather than the second half of 2015.

She also said the Fed was abandoning its threshold target of an unemployment rate of 6.5% for qualitative analysis of a broad range of data, including labor market conditions, inflation expectations and financial markets.

The Fed’s new target interest rate would be 1% at year-end 2015 and 2.25% at year-end 2016.

Additionally, she announced another $10 billion taper to$55 billion.

The only thing new here is the timing of a rise in interest rates, several months ahead of expectations.

At first the market plunged, then it rallied, but Thursday was followed by a rally failure Friday after a big spike in early trading – not good.

A word of caution. Initial responses can be deceiving, since institutional investors tend to crunch numbers in response to important changes in conditions. It is possible, they may consider an earlier change in interest rates as a negative and sell down to a level they think discounts the timing of the rise.

EUROPEAN ECONOMIES:

Manufacturing output , new orders and exports are up for the eighth consecutive month, suggesting its recovery is real, though not yet robust. Our economy has

scratched and clawed its way out of a horrendous recession without help from Europe. Obviously, a recovery there stands to accelerate the pace of our recovery here.

RUSSIA:

On Friday, Russian lawmakers considered legislation, allowing it to incorporate areas in other countries where residents want to secede in face of a dysfunctional central government. While commentary suggested this only applied to Ukraine, who knows for sure at this point ?

Russian nationalism is running high in Crimea and it can spread to other parts of Ukraine even countries that were once satellites to Russian control.

This suggest to me a risk of civil wars breaking out in countries where the Russian language is spoken.

For now this represents an uncertainty for investors, but that could change for the worse, and there is little the West can do about it. No one wants to fight a land war next door to Russia, and Mr. Putin knows it.

Sanctions are about the only deterrent the West has, but Russia has cards to play other than military, since it has economic ties to Europe, especially Germany.

But the price Russia will pay is steep – Its Micex stock index is down 11.6% this year, compared with a drop of 4.8% for the MSCI Emerging Markets Index; S&P and Fitch cut their outlook on Russia’s credit ratings to negative from stable, a downgrade is possible next; Russia may enter a recession in Q2 or Q3; the ruble has plunged; Russia’s borrowing costs have risen.*

This is not over, be forewarned.

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TECHNICAL ANALYSIS EACH OF 30 DOW STOCKS:

At key junctures, I technically analyze each of the 30 Dow Jones industrials for a reasonable near-term downside and a more extreme downside, as well as a near-term upside potential. I note the price for each, add them up and divide by the DJIA divisor (0.1557159) and arrive what the DJIA would be if each of the 30 stocks hit my targets.

As of Thursday’s close I concluded a reasonable near-term downside for the DJIA was 15,900, a more severe near-term downside would be 15,625. The near-term upside would be 16,511. That’s all assuming the overall news environment doesn’t change.

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HOUSING STOCKS – Watch for a clue to the direction of the economy.

As spring approaches, the Street will be dissecting every morsel of economic data in search of how much of the recent slowdown in the economy is attributable to severe weather.

A logical place to snoop is the housing industry and stocks since they should firm up before the industry stats confirm a rebound.However, the industry stats aren’t showing a rebound, though more homes are coming on the market (2.00 million in March vs. 1.88 million in February.

On February 17, I began tracking the following housing industry stocks reasoning that buying by pros more in-the-know than I would give a heads-up on a general rebound in the economy when a break in the weather prompts consumers to emerge from the warmth of their homes.

If these stocks can rise in face of bad news, it stands to reason the severe weather was masking underlying strength. If the stocks cannot rise from these levels, or decline, it does not bode well for a robust expansion in our economy.

Beazer Homes(BZH) Monday: 3/24: $20:06

PulteCorp(PHM) Monday: 3/24: $18.80

Toll Brothers (TOL) Monday: 3/24: $35.51

KB Homes(KBH) Monday: 3/24: $16.76

DR Horton(DHI) Monday: 3/24: $21.45

CONCLUSION: Last week’s brief but sharp rally in the above housing stocks, the second time in a month suggests the Street wants to pounce, it just needs an opening.

Last Wednesday’s attempt to turn the corner was cut short by Fed chief Janet Yellen’s comments in her 2:30 press conference that interest rates can be expected to rise when the Fed’s taper ends in the fall

BUT, a failure to respond over the last four days, suggests the industry needs time or a probe lower to a level that discounts uncertainties.

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THIS WEEK’s ECONOMIC REPORTS:

The economic calendar features important reports reflecting trends in manufacturing and housing.

These reports may still be adversely impacted by severe weather conditions.

For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”

The writer of Investor’s first read, is Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized investment advice or as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.

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